The New Zealand government's recent moves to soften rules on foreign investment have opened up the country's wine industry to overseas buyers. The biggest acquisition so far, the purchase of the New Zealand Wine Fund by California firm Foley Family Wines, pushed the level of foreign ownership in the industry to more than 45 percent, according to figures from New Zealand Winegrowers.
Locals believe the investment in what was a small industry just a few decades ago could bring both opportunities and potential problems.
More foreign investment is sure to follow. Real-estate agents in Marlborough report that more than 5,000 acres of the region's 62,000 acres of vineyard land are currently for sale, and prices are cheaper than at any time in the past decade.
John Hoare, head of Bayley's Marlborough, a leading real-estate agent for wine properties, says the number of overseas enquires fielded by his office has more than doubled in recent months. He believes this is related to both the government's change to residency rules for overseas investors, which has fast-tracked the normally long and bureaucratic process, and sliding land prices.
Before 2008, vineyard land prices in Marlborough fetched an average of $68,000 an acre, he said. But two record-breaking vintages in 2008 and 2009 have created an oversupply of grapes, forcing vineyard prices down. Land owners were now accepting between $40,000 to $50,000 per acre.
"We need the foreign investment. There are just not enough buyers at the moment," Hoare said. "A few years ago the wine companies were buying all the vineyard land, now there aren't enough buyers locally."
New Zealand Wine Fund (NZWF) managing director Peter Scutts says the sale, which is currently being processed, was never planned. "Although some of the shareholders had indicated they would be interested in selling their shares, we hadn't been planning to sell," he said. "But Bill Foley came to us with a very fair offer and we jumped at it."
"I think it is really positive," he said. "Just look at the improved international sales of Montana and Nobilo since they were taken over by Pernod-Ricard and Constellation. This will help us in international markets."
The company produced 350,000 cases of wine in 2009. NZWF sources grapes from their own vineyards (30 percent) and contract growers (70 percent) for its brands Vavasour, Clifford Bay, Dashwood and Goldwater.
New Zealand Winegrowers chief executive Phillip Gregan believes foreign investment in the industry has to be thought of as a positive. "Foreign investment is a signal that people see value in the New Zealand brand and they want a part of it," he said. Gregan also believes the sale will give New Zealand wine added exposure in the U.S. market. "We are underperforming in the U.S. at the moment, so one of the benefits that will come from this acquisition will be added distribution networks in the U.S. This will raise the profile of the New Zealand brand in general."
Bill Foley, head of Foley Family Wines, says the purchase has allowed his company to get "a foothold in one of the world's most respected appellations." And, from a sales perspective, Foley sees the purchase as being a big positive for the New Zealand industry. "In the U.S., selling wine is very complex because each state has their own laws. If you don't have a solid sales network, it's very difficult to get your wines to market. The wines of the New Zealand Wine Fund will see great benefit almost immediately."
But George Fistonich, owner and managing director of Villa Maria Estate, New Zealand's largest family-owned wine company, says for the New Zealand wine industry to benefit, foreign owners must conduct their business with respect to the industry's super-premium standards. While increased distribution will help the New Zealand brand, he says companies need to ensure they don't turn the industry's shining lights, Sauvignon Blanc and Pinot Noir, into commodities.
"If companies focus on increasing production, there is a chance people will become less interested in the unique expression of the wine," he said. "We can't use the strength of our brand, then drop the level of quality and commoditize our wines."
Fistonich also expressed concern that overseas owners may shy away from promoting New Zealand's other, lesser-known wines, such as Riesling, Pinot Gris, Viognier, Syrah and Chardonnay, in favor of focusing solely on Sauvignon Blanc and Pinot Noir. "We are making great reds from Hawkes Bay, particularly Syrah and Merlot from the Gimblett Gravels," he said. "And our maritime climate is perfectly suited toward the crafting of great aromatics. We need to focus on getting these varieties out into the world."